Reserve Requirements Raised by the Central Bank of Peru

The Central Bank of Peru has decided to increase the reserve requirements for the banks of the country. The same has now been done for the 5th time in this year so that the slow credit demand can be somehow handled for this small Latin American country. The Central Bank released an official statement today and stated it has decided to raise the average ratio by 0.25 percentage point for the bank deposits in the soles. On the other hand, the same has been increased by 0.75 percentage point for all the bank deposits which are made in dollars. The decision is going to be effective starting from the next month. The Central Bank of Peru is currently looking forward to mitigate the risk that is associated with foreign currency indebtedness in general, as mentioned by officials.

In addition to announcing the decision, in the official statement, Central Bank of Peru also released some statistics. According to the same, in the month of October, the banks held an average 17.8% of their overall sol deposits at the Central Bank. The same was 40%, when it comes to the overall Dollar deposits.

According to the Central Bank of Peru, this decision was taken so that the speed of credit expansion can be slowed down. The abroad markets are showing high liquidity and the interest rates are exceptionally low in the international markets, so this decision was kind of expected, as predicted by many of the analysts.

Despite the Central Bank has increased the amount of reserves that the banks need to hold 4 times earlier this year, the benchmark interest rate has been kept at the steady figure of 4.25%. The reserve amount increase procedure started in May and the increase was of 0.5 percentage points. The reserve amount was increased at the similar percentage points in September and October as well. In November, the reserve requirements were increased by 0.75 percentage points.

Peruvian nuevo sol, the major currency of Peru is currently at 0.3918 USD. It has depreciated against other major currencies such as GBP, AUD and CAD as well. The currency is expected to have great results in 2013 as predicted by many economists. Peru is expected to receive a boost from the US monetary stimulus and mining investments; if this happens, nuevo sol will also expand further.